There Is Just Crickets, There Is No Activity

A report from the Wall Street Journal. “A strong economy helped lift commercial real-estate sales to near-record levels last year, and many investors are counting on low interest rates to keep sales going in 2019. Now the Federal Reserve’s announcement last week that it would keep interest rates steady could buoy the market further by keeping borrowing costs down, said Sam Chandan, who heads New York University’s Schack Institute of Real Estate.”

“‘We are a debt-driven industry,’ he said.”

From The Real Deal. “When the U.S. real estate market collapsed in 2009, banks and lenders were left scrambling to find buyers for their loans that borrowers had defaulted on. Debt funds and vulture funds were able to scoop up some of those bad loans for pennies on the dollar. Now, Churchill Real Estate Holdings says a version of that story could begin to play out in New York.”

“In response, the New York-based firm has been trying to raise a $200 million distressed debt fund that will focus on a variety of real estate assets in Manhattan, from failed condo projects to struggling retail properties. Some of the fund may also target parts of Brooklyn.”

“The city’s condo market already slowed down in the past year, said Churchill co-founder Justin Ehrlich. ‘There is just crickets,’ Ehrlich said. ‘There is no activity.'”

“Ralph Serrano, managing partner of Miami-based Safe Harbor Equity, a real estate investment firm that focuses on distressed debt, said he is seeing more distressed loans and foreclosures in South Florida’s market. Highlighting this point, in 2018 new foreclosure lawsuits jumped 14 percent in South Florida to 9,905, according to Attom Data Solutions, a sign that more homes could be foreclosed upon this year.”

“Some of the troubled loans belonged to foreign developers who purchased residential real estate at the height of the market a few years ago, only to be sidelined by an influx of new inventory and the city’s cumbersome regulatory process, which delayed project approvals. Ehrlich says with new condo projects set to be completed in 2019, he’s ready to capitalize on more opportunities.”

“‘For the condo market, it’s the perfect storm,’ Ehrlich said. ‘It’s very difficult to get a mortgage and there is enormous amount of inventory.'”

The Commercial Observer. “Boaz Gilad is selling off a big chunk of his holdings, including properties under development and vacant land, Commercial Observer has learned. TerraCRG is marketing the Brookland portfolio, the brokerage confirmed, including five residential properties in Brooklyn that are currently under construction.”

“Gilad’s Brookland Capital is facing default in Israel, where he owes $40 million to bondholders. Gilad announced in November that he could not make his bond payments beginning in 2019, and has since ceded control of the entity that controls his operations in Israel.”

“Gilad has also defaulted on several construction loans to U.S. lenders, according to a notice filed this week on the Tel Aviv Stock Exchange. As of late December, he was accruing between 19 percent and 24 percent interest on those loans, the documents stated.”

“Brookland has roughly 15 properties at various stages of development throughout Brooklyn, in addition to several recently completed projects. The majority are small to medium-sized residential projects that target first-time and millennial buyers, who are in the market in the under $1 million range, Ofer Cohen, head of TerraCRG, said.”

From Multi-Housing News. ” Development experts gathered during the National Multifamily Housing Council’s (NMHC) annual Apartment Strategies Outlook Conference in San Diego to discuss their development strategies for 2019.”

” Secondary tech cities have the most active supply pipelines, with North Dallas, Seattle, Denver and Austin topping the list with the most units under construction. Secondary tech cities also have the highest risk of oversupply over the next two years, Yardi Matrix Vice President Jeff Adler warned, and some markets to watch are Denver, Seattle, Charlotte and Dallas. Although some markets may be at risk of oversupply in the short-term, Adler noted that opportunities still exist outside of the urban core, specifically in intellectual capital nodes.”

“‘Amenities are amazing, but rarely get used by residents, so we’re thinking more about what the consumer really wants. The key to 2019 will be creativity,‘ said Kim Bucklew of Alliance Residential Co.”

From Globe St. “Markets expected to receive the near-term bulk of new multifamily supply are Dallas, Los Angeles, New York, Washington, DC and Seattle, according to a report by RealPage. Dallas leads the pack with roughly 28,000 units on the way, and with Fort Worth’s production lumped in, that total swells to about 35,000 units underway.”

“New supply in these markets will present a challenge to future rent growth. As has been the case for some time now, a gap exists between affordable and high-end apartments.”

From WFYY in South Carolina. “A luxury off-campus apartment complex is sinking in Clemson and students were evacuated after repair foam filled their toilets, according to officials. Officials said the 114 Earle St. apartment complex is sinking, with cracks in the foundation, which has caused dozens of college students to have to evacuate.”

“The building opened two years ago, but officials said the problem is growing. The building opened two years ago, but officials said the problem is growing. The website advertises 114 Earle as Clemson’s newest off-campus community where students can ‘live like champions.'”

“Two students, Natalie and Lauren Konopka had only lived in their new apartment for a couple of months before it flooded. ‘It was like living in a swamp,’ Natalie said. Monthly rent ranges between $900 and $1000 per person.”

The smart money increasingly rents, while the dumb money continues to buy. And the suggestion in the article below that “Even the rich gotta rent” is bogus; for them, it is a matter of personal preference.

There has been a change in the attitude toward home-owning after the financial crisis, particularly amongst higher income households.
— Tendayi Kapfidze, the chief economist at LendingTree

Even the rich gotta rent.

The affluent are increasingly renting, according to multiple studies. Indeed, renters earning $150,000 or more per year were the fastest-growing group of renters, according to a recent study by apartment listing site RentCafe.com, which analyzed pricing and demographic data from the U.S. Census, real estate listing sites Redfin and PropertyShark, and apartment real estate research firm Yardi Matrix.

“Between 2007 and 2017, top-earning renters increased by 175%, while homeowners within the same income bracket exhibited a 67% growth rate,” the RentCafe.com study revealed. “Out of the 43.3 million renters nationwide, 2.1 million are top earners according to the latest available U.S. Census data. Back in 2007, there were only 774,000 high-income renters.”

A 2018 study from the Joint Center for Housing Studies of Harvard University also found that high-earners were increasingly renting. The number of renters with incomes above $100,000 rose 5% in 2017, “bringing the cumulative increase in 2012–2017 to about 2.6 million,” the report revealed. Furthermore, the rentership rate in that income bracket hit an all-time high (19%) in 2017 with higher income households accounting “for the vast majority of renter growth over the past five years.”
…

Ditto here. My realtor friends are always admonishing me – “oh, you have so much savings and good income, why don’t you want to buy something? It’s a can’t-lose ‘investment’, blah blah blah” – to which I always respond: “how do you think I saved up such a nice wad of cash? Renting and living well below my means” The vapid looks on their faces upon hearing this is always amusing, and as they struggle to make their BMW payments I will be crawling around the same LA traffic as them in my paid-off 10-y/o Honda.

My SIL used to regularly urge us to buy. That was while she and her ex were moving up the Happy Valley property ladder through a succession of three increasingly larger McMansions they owned during the run-up to the Great Recession, job loss, foreclosure, and their divorce. My wife and I rented the entire time, and our kids all grew up happy and well fed.

I also suggest that you peruse @TeslaCharts and the $TSLAQ community on Twitter. Discernment, as always, required.

Appreciate the suggestion and note that you are a Tesla skeptic as are others on this blog. I am well aware of the Tesla short thesis. They are a bit looney in my book. Several of my co-workers drive Teslas and my father has one. By far the most enjoyable vehicle I have ever driven. And since I commute a considerable distance 2x a week, autopilot will be quite nice. It’s a matter of when, not if.

300 miles. One bad economic/life choice does not get cancelled by another.

Fair point. Having said that, some people commute 45 minutes one-way every day for a total of an hour and a half every day. That is about my equivalent commute, just all in one chunk. I prefer it that way actually. I catch up on podcasts and listen to The Economist articles while I drive. It’s relaxing to me. Sometimes I queue up HBB blog entries and have Siri read them to me, so that kills two birds with one stone since I’d probably be wasting some time reading these entries anyway just for fun.

The choice we’ve made is based on the hand that was dealt us, but it gives us free rent at both places and we sock away $5k a month in savings. I spend tons of quality time with my son and wife, just in a truncated way since I have Friday off every week (and Sat too, but I drive back Sunday night).

Everyone does what works for them. Some live on a boat, others are mortgaged up to the hilt. I feel good about our decisions though it is not ideal in all regards.

President Trump’s remaining friends in the world of New York City real estate have apparently been buzzing in his ear about the impact of his decision to eliminate the SALT deductions as part of his tax-reform plan, because as real-estate prices in New York City and in other tony blue-state markets have started to slide, the president told a group of reporters in Washington that he’s considering reinstating the deductions.

As a reminder, a provision in the 2017 tax plan capped deductions for state and local taxes at $10,000 for taxpayers who itemized their deductions, a move that was seen as disproportionately punishing blue states, where property values are typically higher, and therefore, property taxes more expensive. At the time, the administration defended eliminating SALT as ending a federal subsidy to local taxpayers in pricier markets. Or as Trump put it: “It makes all states the same.”

Hard to find something that didn’t bubble. Some of them are down from peak but have a long way to go. Include everything that goes into construction at least; steel, copper, coal, dozers, oil, trucks and what’s in the lunchbox. Solar cells, windmills and electric cars. College. China and everything in it. On & on….